Thursday, September 22, 2011

Cassava Beer, Nigerian Guinness, and Western Companies

The day before last, I attended an on-the-record discussion with two
African heads of state here at the CFR. One talking point was a pitch
for foreign investment in their countries. This brings us back to the
debate over “Africa’s untapped potential,” and the costs and benefits of
doing business on the continent. Responding to a previous posting
on this topic, a blog reader commented tongue-in-cheek “Africa may not
be a ready market for Western businesses because the West produces
mainly higher added value products. But from where I type in Enugu,
Nigeria, it is a goldmine for Chinese and Indian manufacturers,” whose
products are much cheaper.

A recentFinancial Times article
suggests that Africa is, indeed, ready for products produced by Western
companies—and that they should be thinking hard about ways to make
their businesses on the continent work. The author quotes Nestlé’s head
of emerging markets that there are three hundred million to four hundred
people in Africa who can already afford his companies products, and
within a few years that could increase to six hundred million.

The many challenges of doing business in Africa—underdeveloped
infrastructure and supply networks, political and financial constraints,
not enough skilled workers—do not lend themselves to conventional
business models. However, motivated companies have begun to find
innovative solutions.

Food and drink companies that already have significant operations in
Africa–Heineken, Nestle, Unilever, SABMiller, and Diageo (Guinness)—for
example, are overcoming sourcing problems by purchasing from local
farmers and, in exchange, providing training and a guaranteed price for
the finished product. In some cases, the company will also provide
seeds, fertilizers and even microfinance.
SABMiller is trying to create new products with locally available crops. For example, the company is using locally produced cassava
in beer that will sell for seventy percent less than other types.
Nestle has responded to supply network and transport issues by setting
up smaller and cheaper “finishing” factories close to customers, which
gives Nestle the flexibility to increase production when demand rises.

Who knows? Perhaps we will see cassava beer on the shelves in the
United States before too long—or even Nigerian-brewed Guinness, which
I’ve heard has acquired something of a cult following in the UK